Short Sales May Lose Favor in California
September 6, 2013
Home owners in California may be less likely to consider a short sale now that the state failed to take action on legislation that would have given a tax break on short sales.
The Assembly Appropriations Committee in the California legislature did not move Senate Bill 30 out of the committee. The California Association of REALTORS® warns that inaction on the bill means that home owners who sold their homes in a short sale will have to pay state income tax on money they didn’t even receive.
The bill sought to conform California law to federal tax law. Federal tax law states that sellers cannot be taxed on forgiven debt.
However, California’s current laws state that sellers must pay state income tax on the mortgage debt that lenders forgive in a short sale. An exemption in the state did exist to this rule, but the exemption lapsed at the end of 2012 and has yet to be renewed.
CAR supported the bill and CAR officials say they were disappointed at the legislature’s lack of response on the matter. "These are real families in real financial need who may well be forced into bankruptcy by an unresponsive legislature," says CAR President Don Faught. "We hope that that the legislature will rectify this in the closing days of the session."
Source: “Short sales could lose their appeal in California,” HousingWire (Sept. 5, 2013)
Updated: September 30, 2020